Edited version of private advice

Authorisation Number: 1052089889365

Date of advice: 13 March 2023

Ruling

Subject: Pay as you go (PAYG) withholding - superannuation death lump sum benefits

Question

In the context of a successor fund transfer, does the Transferee Fund have a Pay As You Go (PAYG) withholding obligation under section 12-85 of Schedule 1 to the Taxation Administration Act 1953 (TAA) in respect of a superannuation lump sum death benefit paid to a non-dependant where the deceased had death benefit cover in the Transferor Fund (but not in the Transferee Fund)?

Answer

Yes.

This ruling applies for the following periods:

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

30 November 20XX

Relevant facts and circumstances

The Applicant is the trustee for Trust A. Trust A is a large public offer superannuation master trust with approximately XXXX members and is a complying superannuation fund for the purposes of the Income Tax Assessment Act 1997.

Entity B is the trustee for Trust B. Trust B currently has approximately XXX members.

The members of Trust B ('the Transferor Fund') were transferred to Trust A ('the Transferee Fund') by means of a successor fund transfer (SFT).[1]

Insurance premiums in respect of death cover were paid in the Transferor Fund (but not in the Transferee Fund) in respect of various fund members. During the year of transfer and thereafter, lump sum death benefits may be paid to non-dependants for taxation purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 307-290

Taxation Administration Act 1953 Division 12

Taxation Administration Act 1953 section 12-1

Taxation Administration Act 1953 section 12-85

Taxation Administration Act 1953 Division 15

Taxation Administration Act 1953 section 15-10

Reasons for decision

Question

Summary

The Transferee Fund would have an obligation to withhold PAYG under section 12-85 of Schedule 1 to the TAA in respect of a superannuation lump sum death benefit paid to a non-dependant where the deceased had death benefit cover in the Transferor Fund (but not in the Transferee Fund).

Detailed reasoning

Division 12 of Schedule 1 to the TAA sets out payments from which amounts must be withheld. In particular, section 12-85 of Schedule 1 to the TAA states that an entity must withhold an amount from any of the following payments it makes to an individual:

(a)    A superannuation lump sum

(b)    A payment that is an employment termination payment or would be one except that is received more than more than 12 months after termination of employment.

Section 12-1 of Schedule 1 to the TAA lists an exception to section 12-85 of Schedule 1 to the TAA. However, in this case, the exception under section 12-1 does not apply in respect of lump sum death benefits paid to non-dependants.

Division 15 of Schedule 1 to the TAA provides the method to work out the amount to withhold. In particular, section 15-10 of Schedule 1 to the TAA states:

The amount that Subdivision 12-B, 12-C or 12-D requires to be withheld from a payment is to be worked out under the withholding schedules made under section 15-25 ...

Section 12-85 of Schedule 1 to the TAA is within Subdivision 12-C of Schedule 1 to the TAA. There is a withholding schedule (Schedule 12 - Tax table for superannuation lump sums) that applies to superannuation lump sums, including death benefits paid to a non-dependant. Where a death benefit lump sum is paid to a non-dependant, the current withholding rates are 17% and 32% respectively on the taxed element and the untaxed element of the taxable component.

The Transferee Fund will need to calculate the taxed and untaxed elements of the taxable component of the death benefit lump sum in accordance with section 307-290 of the Income Tax Assessment Act 1997.

[1] 'Successor fund transfer' means the transfer of members and assets representing their entitlements in one registrable super entity (RSE) to another RSE with a different Australian Business Number (ABN) without their members' consent as permitted under paragraph 6.29(1)(c) of the Superannuation Industry (Supervision) Regulations 1994.